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Save for retirement when you don't make much

Retirement » Save For Retirement When You Don't Make Much

Retirement fears may loom large when your income is small. Today, 38 percent of households say they live paycheck to paycheck, according to a study by the Consumer Federation of America and the Certified Financial Planner Board of Standards. And one-third of Americans worry they'll never be able to retire, according to a survey from Pentegra Retirement Services.

"For so many Americans, planning for retirement seems too enormous to tackle, and it feels like it is already too late," says Rich Rausser, senior vice president at Pentegra. "But it's not so."

Save $15 a week for 25 years, for instance, and you'll have $62,183, assuming an 8 percent annualized return. Save $30, and that's $124,365. "When I tell people that, they're stunned," says Rausser. "You can have an amount of money you never thought you'd be able to save."

Follow these steps to save for retirement, even if you don't make a lot.

Make a budget

Say "budget," and many people run for the hills. According to Bankrate's July 2012 Financial Security Index survey, 38 percent of Americans don't track their spending.

"When I ask people, 'How do you spend your money?' they don't know," says CFP professional Dee Lee, author of "Women and Money."

"They're living with what they've got, from paycheck to paycheck. They aren't planning."

Having a firm grasp of where your money goes enables you to set some aside for emergencies and future goals. You can track your spending using apps, software such as Quicken or by hand -- with pencil and paper. The only thing that matters is developing a budget that is grounded in reality.

Start with bank and credit card statements, and keep receipts for items you pay for with cash. As you look back at where the dollars went over the past month or two, assign your spending to the appropriate category -- clothing, travel, car expenses.

Add a line item for emergencies. Generally, you'll need three to six months' worth of living expenses to pay for mishaps without reaching for credit cards or going into debt.

Your budget also should reflect your commitment to save for retirement. Don't be discouraged if you only have a little. Twenty-five dollars a week will be worth $56,669 in 20 years, assuming a 7 percent annual return. Just be sure to start. "The first dollar you save is the most valuable," says Rausser. "Start with 1 percent, 2 percent, 3 percent of salary. Commit to a plan of auto-escalation, each year increasing to your retirement plan by 1 percent. The numbers will move."

Plug in fixed costs. It's easier to stick to spending plans when expenses are steady, so build a budget with as many fixed costs as possible. For instance, heating bills rise when the temperature drops, and air-conditioning bills climb during sweltering summers. But your bank account shouldn't be iced every time a nor'easter blows through. For a period of time, consider enrolling in your utility's budget plan, so you pay the same amount every month -- based on an average from your past use -- to avoid periodic high bills that can throw budgets out of whack.

Find and seize savings

Because fees can take a big bite from your budget, it pays to evaluate how much you pay in interest and fees on your mortgage, insurance policies and credit cards at least once a year to see if you can find a better deal elsewhere. Online price comparisons at sites such as Bankrate.com make that chore relatively easy.

Cutting back on things we love is harder. Can't live without that daily vanilla soy latte? Fine. But you'll need to be creative about trimming elsewhere to save money.

College freshman Ben Ellenberg, 18, loved his new cellphone, but he swapped it for a prepaid plan that saved him $840 a year. He made the switch after digging post holes under the blazing sun last summer. "I worked too hard for my money," he said.

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